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Hisense Group: Another Chinese Manufacturer to Watch

February 3rd, 2017

During CES 2017, hosted in January 2017, in addition to its latest laser television products, Hisense showcased its newest connected fridge freezers, built with built-in voice control capability, which can receive user voice commands. They can also interact with users to recommend dishes based on scanned available food ingredients found in them and family members’ health conditions and food preferences. With the trend towards control through voice recognition, which became mainstream at CES 2017, and is seeing companies such as LG Corp equipping their latest fridge freezers with Amazon Alexa, Hisense is not only competing with its Chinese rivals but is also aiming to closely develop its appliances in line with global trends for its global competencies against Western (e.g. Electrolux, Whirlpool) and South Korean companies (e.g. LG, Samsung).

Hisense Showcases its Connected Fridge Freezer with Voice Control at CES 2017

Source: ZOL.com

Key strengths in refrigeration and air conditioners in China

Within the consumer appliances industry, Hisense’s key strengths lie in refrigeration appliances and air conditioners, categories which were ranked seventh and sixth respectively in terms of 2016 global volume sales. The key market advantage that Hisense has leveraged on in the past was that it is based in China, the world’s largest consumer appliances market. However, in the case of refrigeration appliances and air conditioners, high inventory levels since 2015, caused by price wars, the end of China’s subsidy on energy efficient appliances, and a slowdown in the Chinese economy have all made the refrigeration appliances and air conditioners market volume sales decline, negatively impacting most companies, including Hisense.

Product diversification to further grow home laundry appliances

To reduce category reliance on refrigeration appliances and air conditioners as well as market dependence on China, Hisense has been diversifying its business, both in terms of category and geography. Home laundry appliances and microwaves were the two main categories being further invested in. The company has increased its volume sales of home laundry appliances from 2% to 5% in its total consumer appliances sales volume from 2011 to 2016, leveraging on its technology development on home laundry appliances and above 4% y-o-y growth from 2012-2016 home laundry appliances growth in China, driven by Chinese consumers upgrading from top loading to front loading machines in Chinese cities and from semi-automatic washing machines to automatic washing machines in rural areas.

Geographical diversification to strengthen presence in MEA and Western Europe

Geographically, the Chinese economy is facing several key threats: an increase in labour costs and a shrinking work population, which is curbing growth; as well as a financial bubble in the housing market, which could trigger a hard landing within the country. Externally, both Brexit and Trump’s presidency have added uncertainties and the risk of a global crisis, which are further dampening growth in China. If a major downturn takes place in Q2 2017, China’s real GDP growth is likely to drop to 0% and its unemployment rate is likely to increase to 4% by the end of 2017, which will make consumers cut back on spending and hold off the replacement of consumer appliances, which will result in a significant decline in the consumer appliances market.

China Economy Forecast 2017-2018

Source: Euromonitor Macro Model

To diversify its business outside China, Hisense has increased investment in the Middle East and Africa (MEA), the projected fastest growing region in consumer appliances over 2016-2021. It has done this by increasing its production capacity in MEA, which has lower production costs than China, in the hope that it will be able to better support sales in Western Europe and MEA. Hisense has production facilities in Egypt, South Africa and Algeria to produce refrigeration appliances, air conditioners and televisions. It has also tried to increase sales outside China by strengthening brand awareness overseas through sports sponsorship, especially the sponsorship of the UEFA Euro 2016 championship, which cost almost EUR50 million (around 25% of Hisense Group’s 2015 net profit).

Moving forward, to differentiate from its Chinese rivals in terms of geographic expansion, Hisenseneeds to consider the acquisition of a European mid-priced or premium brand/company in order to gain a strong foothold in Europe. Rival Haier has already acquired GE appliances to gain a strong foothold in North America and Midea has bought a major stake in Toshiba Appliances to strengthen its presence in Japan and Southeast Asia.

Connected appliances development to leverage synergies between appliances and electronics

In terms of connected appliances, Hisense is likely to leverage synergies between its consumer appliances and consumer electronics businesses (mainly televisions), to develop smart home solutions, with smart televisions being the control hub of the smart home. Using local mainstream voice control solutions, such as Amazon Alexa in the US and Western Europe, and local language recognition capability, such as Spanish, Italian and German in Western Europe, are advisable ways to customise products to meet requirements in local overseas markets.

For more details on Hisense Group, read the Hisense Group global company profile.

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Feng Zhang

Feng Zhang is a Consumer Appliances Analyst at Euromonitor International. He holds a MBA in marketing and double engineering degrees. Professional interests include market research and competitive strategy. With hybrid training and work experience in business management and engineering, he authors competitive trend analysis from both business and engineering angles.

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